Expected Earnings

Although consolidated pre-tax profit projected for the financial year 2006 will not reach the exorbitantly high figure of 2005, it should, from today's standpoint, more or less match the very gratifying level of the year 2004.

Assuming that the favorable market situation for rolled steel products and tubes persists, the result in 2007 is likely to be marginally lower.

We expect the individual divisions to develop as follows:

With larger shipments of rolled steel products, declining revenues by comparison with the extremely high annual average in 2005, coupled with the rising input price of ore, scrap, coal and energy, the Steel Division expects the pre-tax result to fall to a stable level in 2006, which is nonetheless still far above the long-term average. This development should be repeated in 2007 as well. The valuation of inventory under IFRS is not sufficiently planable and was therefore eliminated for subsequent years.

In all probability, it will not be possible to compensate the rising cost of raw materials and falling revenues by increasing shipment, refraining from purchasing slabs and improved capacity levels. SZFG therefore anticipates a considerable drop in profit in a year-on-year comparison.

PTG is also planning for a lower result in 2006. The decline will be mainly due to the effect from changes in the inventory valuation methodology no longer applicable. Margins, which are expected to narrow in 2007, could also be a drag on the result.

At ILG, the stabilizing of plate revenues will considerably erode profit in 2006, but the level attained will nonetheless be outstanding. This stable, but still ambitious, level is expected to be achieved in 2007 as well.

In 2006, HSP expects a balanced result provided that the volume of shipments and prices remain relatively unchanged in 2007.

Higher shipments and improved revenues should bring SZBE back to break-even again in 2006 and 2007.

SZEP anticipates a marginal decline in pre-tax profit in 2006, caused by one-off effects which are no longer applicable, and predicts an uptrend in 2007.

Following an excellent year for steel tubes in 2005, the Tubes Division has forecast profit for this year in the a triple-digit million range, which is substantially lower in a year-on-year comparison but is nonetheless at an extremely high level, far above the long-standing average. In 2007, this figures will probably be somewhat lower.

The main deviation will result from the newly organized cooperation with Vallourec. The forecast for the seamless tubes segment is still at a high level but, due to changes in the holding structure at V&M/VLR, profit contribution will almost halve. This figure will probably be repeated in 2007 as well.

The large-diameter pipes segment will benefit from sustained demand for pipes, in particular in the Near and Middle East. Bolstered by rising volumes and greater revenue quality, the EP Group is set to raise profit considerably in 2006. In 2007, however, the assumption is that lower prices will reduce profit. Despite good general conditions in 2006, MRM will see profit fall significantly, a trend mainly attributable to rising costs for maintenance and repair work; the level is expected to remain unchanged in 2007. In both 2006 and 2007, SZGR anticipates that, despite the higher volume of shipments, results will be slightly lower due to an increase in the cost of input materials.

With revenue down for HFI-welded line pipes, the result forecast for 2006 for Mannesmann Fuchs Rohr GmbH (MFR), the company which will emerge from the projected combination of the two independent companies MLP and RGF, is set to fall. A sustained increase in the volume of shipments and the resulting stable revenue will be reflected in higher profit in 2007.

The cold-finished tubes segment is likely to record a decline in profit in relation to 2005, mainly due not only to MHP/ROB, but also to the DMV Group, which will generate less revenue.

While the result at MHP/ROB is expected to slip somewhat in 2007, profit at DMV will stabilize.

In 2006, the Trading Division anticipates that profits will fall by almost half in comparison with 2005. Despite this development, which will probably be attributable to the results of the major companies (SMHD Group and UES) being halved, the result will nonetheless be above the long-term average. All told, performance is expected to remain at a similar level in 2007.

SMHD predicts a decline in revenues for stockholding companies in Germany which will cause a reduction in specific gross earnings. International trading anticipates that business volume will stabilize, with a slight decline in gross earnings.

The stabilization of the plate economic cycle, in conjunction with higher inventory values, will diminish the projected result of UES in 2006, which is set to recover somewhat in 2007.

Additional shipments of blanks and slit coils, enabled by the projected acquisition of Flachform Stahl GmbH, are intended to extend the profit of HLG in 2006, a performance which should persist in 2007.

Plans of RSA to raise profit in 2006 and 2007 as against 2005 are mainly the result of growth in the shipments of stamped blanks for the automotive industry.

The profit generated by the Service Division is likely to more than double in 2006, whereas in 2007 this figure will see only gradual change.

The primary cause of this substantial improvement in profit is the result of SZAE, based on additional acquisition of major projects. SZAE believes that the market situation will improve in the year ahead, accompanied by lower costs; so, at the latest, the turnaround will be staged by 2007. SZST intends to concentrate more intensively on reducing the amount of external services at the steel companies and achieve a balanced result in 2006. Future cost savings realized will be passed on to the Group customers in the form of lower transfer prices, the company's goal being to achieve a break-even result in 2007.

Higher revenues from plant freight activities and taking over ore traffic from Hamburg to Salzgitter will enable VPS to achieve a balanced result in 2006 which will, due to the general increase in costs and of personnel in particular, slip into the red again in 2007.

The first-time utilization throughout the year of the increased handling capacity will generate a higher profit for HAN in 2006, a level which the company intends to match in 2007.

The other companies have budgeted stable or gradually increasing results.

The consolidated result is derived from the sum total of the individual plans of the subsidiaries, including the holding and consolidation effects.

By contrast, under the German Commercial Code (HGB), the ability of the Group to pay dividend is subject to the company annual financial statements drawn up for Salzgitter AG. This process is also to take account of the new legal structure of the Group in that the earnings transfers of the major Group companies are no longer recorded at SZAG but at SMG. SMG will then, if necessary, simultaneously, pay dividend to SZAG. From today's perspective, the payment of an appropriate dividend, taken from the operating result for the financial years 2006 and 2007, seems realistic.